Option Investor
Newsletter

Daily Newsletter, Monday, 12/12/2011

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Europe Giveth, Europe Taketh Away

by Todd Shriber

Click here to email Todd Shriber
If European policymakers were cats with nine lives, they must be getting close to exhausting that allotment because not much happened in Brussels last week. That was enough to keep the market humming last Friday, but not enough to stem big losses today. Moody's Investors Service and Fitch Ratings had less than choice words for the lack of result out of the EU summit last week. That coupled with some glum stock-specific headlines here in the U.S. led to losses of well over 1% for all three major indexes.

Stats Table

Say what you want about ratings agencies being late to the party and you will probably be correct, but Moody's was not shy in its assessment of European financials. The ratings agency said it will review all the credit ratings of all European nations acknowledging last week's summit accomplished a whole bunch of nothing.

While saying Europe remains ''prone to further shocks'' and the euro will remain pressured, Moody's said last week's accord does nothing to address the massive debt loads facing European countries. Of course, none of the ratings agency chatter was good for European bonds. According to Reuters: The yield on the benchmark Italian 10-year bond rose to 6.53 percent. Greece and Portugal were forced to seek bailouts from their creditors when their bond yields approached 7 percent.

And as bad news out of Europe normally does, it pressured riskier assets today. Caterpillar (CAT), Chevron (CVX) and Exxon Mobil (XOM) were among the Dow's worst offenders today, but the carnage was not contained to equities. Gold was no safe have. An almost 3% drop for the iShares Silver Trust (SLV) has that ETF in danger of dropping below $30 for the first time since October. Oil was taken to the woodshed as well with January West Texas Intermediate futures giving up 1.7%. Macro concerns clearly make it difficult for oil to hold the triple-digit area.

Oil Chart

As I noted at the start, it was not a pretty day at the stock-specific level either. Take the curious case of Diamond Foods (DMND) as an example. I say this as someone that holds and intends to hold General Mills (GIS) for a while: Food stocks are pretty boring, but then again that is part of the allure as long as the dividend is reliable. Well, Diamond Foods has been anything but boring.

In fact, this company is a soap opera right and has been for at least a month now. I will try to give you the abridged version. Diamond wants to acquire the Pringles brand from Procter & Gamble (PG). That deal looked like it was going to happen until some shareholder suits popped up calling Diamond's accounting practices into question. That has delayed the Pringles deal. In November, several outlets reported that a Diamond director who was also a member of the board's audit committee took his own life. All that negative press sent the stock plunging and keep in mind, Diamond was a about as close as one could come to a growth stock in the food sector.

On Friday, a KeyBanc analyst said the inquiries into the company's accounting practices would probably end soon and that sent the stock up almost 53%. Then last night, a story appeared on the Wall Street Journal's Web site that said Diamond was doing some suspect things with payments to walnut growers. Today, the company said it is delaying the filing of its 10-Q.

“In accordance with standard Nasdaq procedure, Diamond expects to receive a notice of deficiency from the Nasdaq Listing Qualifications Department, indicating that Diamond is not in compliance with Nasdaq Listing Rule 5250(c)(1). Diamond intends to submit a plan to regain compliance as quickly as possible. During this process, Diamond's common stock will continue to be listed and traded on The NASDAQ Global Select Market,” Diamond said in a statement.

The stock fell almost 23% today on volume that was more than seven times the daily average.

Diamond Foods Chart

Also following victim to a bad news, large volume decline was Dow component Intel (INTC). The world's largest semiconductor maker lowered its fourth-quarter revenue guidance due to flooding in Thailand that has hampered production of computer-related equipment. Intel lowered its fourth-quarter revenue guidance to $13.7 billion, give or take $300 million, down from a previous forecast of $14.7 billion. Analysts were expecting $14.65 billion.

Analysts expect the Thailand floods to reduce global hard drive production by a third this quarter. Intel said its customers are reducing their stock of chips in anticipation of the hard drive shortage continuing early next year, although it said it still expects sales of PCs to be up in the fourth quarter, Reuters reported.

The Intel news comes on top of a less-than-impressive guidance from Texas Instruments (TXN) last week and it sent shocks throughout the chip sector. TI was down another 3% today while AMD was down 4.3%. The Semiconductor HOLDRs fell 3.1%. TI and Intel account for over 40% of that ETF's weight.

Intel Chart

The big problem with the Intel news is that we are on the cusp of another earnings season and if they were not previously, concerns are now swirling that other companies, regardless of sector, are going to be issuing downbeat guidance in the coming weeks.

That remains to be seen, but there was some good news for select stocks on Monday. Just two Dow stocks finished the day higher, Walt Disney (DIS) and McDonald's (MCD) with the latter making yet another 52- week high. Man, my dad told me to buy MCD a while ago. I should have listened. Pfizer (PFE) finished the day in the red, but the Dow component did say it is raising its quarterly dividend 10% to 22 cents a share from 20 cents and boosting its share repurchase plans by $10 billion. The company said it plans to buyback $5 billion of its own stock next year.

One of the days stalwarts was aggregates producer Vulcan Materials (VMC), which surged 15.4% after receiving a a hostile $4.8 billion all-stock offer from smaller rival Martin Marietta Materials (MLM). In the go-go days of the U.S. housing market, these were awesome stocks, but in the past two years, MLM is down over 16% while Vulcan has plunged more than 30%.

As the Wall Street Journal reported, Martin Marietta is using a logical approach to try to woo Vulcan shareholders: Cost-savings and the dividend. The combined company could save $250 million annually and Martin Marietta offers a better, safe dividend. Vulcan used to pay 25 cents per quarter, but that was recently cut to the princely sum of a penny per quarter. That works out to four cents a year. MLM's current payout is $1.60 per share per year. That seems to be a sound argument, at least to me.

Vulcan Materials Chart

Looking at the charts, the S&P 500 closed just over 1236, meaning the index closed just above support at 1235. If 1235 does not hold, the next stopping points would be 1225, 1200 and 1185 on the dowside. Resistance is 1265, 1295 and then 1350. It is going to take the absence of bad news from Europe for the S&P 500 to get to 1350 or higher by year-end.

S&P 500 Chart

The Dow has a moderately more attractive chart than the S&P 500 and at least the Dow can say it is still above its 50- and 200-day moving averages. The Dow was able to remain above support at 12,00 at the close today and in this topsy-turvy environment, could easily make a run back to resistance at 12,230 any day now. However, if that is going to happen, McDonald's cannot do all the work alone. Caterpillar remains below its 200-day line and CVX could drop below there as well with a couple of bad days. If those stocks stay in their funk, the Dow probably is not going anywhere.

Dow Chart

I keep hearing that is the time of year to own growth and discretionary stocks, but the Nasdaq is not confirming that theory at the moment. Even with a sharp decline today, the Nasdaq remained above critical support at 2600. A drop below there would likely mean accelerated selling with no rest until 2500 or below. Resistance is 2670.

Nasdaq Chart

I apologize for being so brief this week, but I have a nasty cold. I will leave you with an interesting factoid though: On this day in 1979 gold closed at what was then a record $462.50 an ounce. Gold bugs have a come a long way.

Todd Shriber

The Ultimate Investor Newsletter

We are adding a new publication to the End of Year special this year. Option Investor and Premier Investor have gravitated over the years to shorter term trades. I am launching a different type of newsletter for longer term investors that don't want to be managing trades every day. The types of positions in the Ultimate Investor could last from weeks to months depending on the position. These will be lower volatility "investments" rather than trades.

This newsletter will focus on "story stocks" and special situations that provide us with a low risk opportunity to profit. An example would be a long term call option on Hewlett Packard when they fired their CEO and hired Meg Whitman to turn the company around. That would be a 3-6 month position. Another example would have been taking a position in Yahoo when Carol Bartz was fired and the company put up for sale. We will also take positions in stocks ripe for a takeover as we have seen in the oil sector with Global Industries (GLBL) and Brigham Exploration (BEXP).

Click here for Full Description of Ultimate Investor

Ultimate Investor will use all investment strategies including stocks, options of all types, spreads, etc. The type of strategy used will fit the special situation we are targeting.

This will be an investment newsletter rather than a trading newsletter. If market volatility has gotten you down then maybe something with a longer focus is what you need.

Subscribers to the End of Year Special below will receive six months of the Ultimate Investor Newsletter as well.

Have You Renewed Yet?

Every December we offer the best prices of the year on a renewal package of our top newsletters. If you have been a subscriber for several years you know this is the best price and the best deal of the year.

This year we are offering Option Investor, Premier Investor, Leap Trader, Option Writer and our new newsletter starting in January, Ultimate Investor.

Please follow the link below to see for yourself the EOY subscription special for 2011. You will not be disappointed!


New Option Plays

Medical Equipment

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate, consider these stocks as possible trades:

HITK - shares displayed some relative strength today. Further strength might be a buy signal here. The trend of higher lows is bullish.

CBRL - this restaurant stock is consolidating sideways under resistance at $50.00. Look for a breakout.

- James


NEW DIRECTIONAL CALL PLAYS

Varian Medical Sys. - VAR - close: 64.75 change: +0.33

Stop Loss: 62.80
Target(s): 69.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
VAR makes medical equipment and software. The stock has been consolidating sideways under resistance at the $65.00 level. Shares managed to show some relative strength today with a +0.5% gain. If the stock can breakout past resistance it should see a run towards the next level of resistance near $70.00.

I am suggesting a trigger to buy calls at $65.25 with a stop at $62.80. Our target is $69.75. FYI: The Point & Figure chart for VAR is bullish with a $89 target.

Trigger @ 65.25

- Suggested Positions -

buy the JAN $65 call (VAR1221A65) ask $2.50

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on December 12, 2011



In Play Updates and Reviews

Tech Stocks Stumble on INTC's Warning

by James Brown

Click here to email James Brown

Editor's Note:

An earnings warning from INTC and word that Moody's might downgrade parts of Europe pushed stocks into the red.

Technology stocks underperformed thanks to INTC's news. HPQ gapped open lower, under our stop loss.

-James

Current Portfolio:


CALL Play Updates

Boeing Co. - BA - close: 70.90 change: -1.03

Stop Loss: 69.25
Target(s): 77.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/12 update: Shares of BA were upgraded this morning but the news failed to help the stock price. Shares gapped open lower so our trade did not open today. Traders did buy the dip near support at $70 and its 10-dma.

I am suggesting we try again. The plan is to buy calls on BA tomorrow morning but only if both BA and the S&P 500 index open positive. Given today's $1.00 drop we are adjusting our stop loss down to $69.25.

There is potential resistance at $75.00 and more conservative traders may want to exit there. I am aiming for $77.00. FYI: The Point & Figure chart for BA is bullish with a $79 target.

*See Entry Details Above*

- Suggested Positions -

buy the 2012Jan $75 call (BA1221A75)

12/12/11 adjusted stop loss to $69.25
12/12/11 trade did not open, try again.

Entry on December xx at $ xx.xx
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on December 10, 2011


Caterpillar - CAT - close: 93.24 change: -2.73

Stop Loss: 95.45
Target(s): 107.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/12 update: CAT was an underperformer today. The stock's -2.8% decline almost completely erased Friday's big gain. Shares neared potential short-term support near $92.00 late this afternoon. Aggressive traders might want to consider buying the late day bounce with a very tight stop loss. The newsletter is leaving our entry point to buy calls at $98.55.

Trigger @ 98.55

- Suggested Positions -

buy the 2012Jan $100 call (CAT1221A100)

12/10/11 No change to our strategy. Use a trigger to buy calls at $98.55
12/08/11 CAT continues to slip. We will re-evaluate our entry point strategy this weekend and make adjustments or drop CAT as a candidate.

Entry on December xx at $ xx.xx
Earnings Date 01/26/12 (unconfirmed)
Average Daily Volume = 8.1 million
Listed on December 03, 2011


Cooper Industries - CBE - close: 53.37 change: -1.68

Stop Loss: 54.65
Target(s): 62.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/12 update: CBE also underperformed today with a -3.0% drop. Shares fall toward $53 and the 50-dma before paring their losses. CBE's trend of higher lows is in jeopardy of being broken.

We are leaving our entry point to buy calls at $57.05.

Trigger @ 57.05

- Suggested Positions -

buy the Jan $60 call (CBE1221A60)

12/10/11 We will keep our trigger to buy calls @ 57.05
12/08/11 We will re-evaluate our entry point strategy this weekend and make adjustments or drop CBE as a candidate.

Entry on December xx at $ xx.xx
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 3.7 million
Listed on December 06, 2011


Family Dollar Stores - FDO - close: 57.57 change: -0.29

Stop Loss: 56.75
Target(s): 64.00
Current Option Gain/Loss: - 46.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/12 update: FDO held up reasonably well. Shares ended the session down -0.5% versus -1.5% for the S&P 500. The stock was struggling with the $58.00 level late in the day. I don't see any changes from my weekend comments. Readers may want to wait for a rally past $58.50 or $59.00 before considering new bullish positions.

Earlier Comments:
We want to keep our position size small because the spreads on the options below are getting wide, making this trade more risky.

(small positions) - Suggested Positions -

Long JAN $60 call (FDO1221A60) Entry $1.40

12/07/11 trade opened at $58.00 trigger
12/03/11 Adjust buy-the-dip trigger to $58.00
12/03/11 new stop loss @ 56.75
11/30 New strategy to account for FDO's bullish breakout higher. We want to use a trigger at $58.50 to open bullish positions with a stop at $56.45. New target is $64.00. I've updated our option strikes.
11/26 new strategy. buy a dip at $54.50, stop loss @ 53.75. Keep positions small because option spreads are wide.
11/22 not open yet

Entry on December 07 at $58.00
Earnings Date 01/04/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 21, 2011


FMC Technologies, Inc. - FTI - close: 49.76 change: -2.10

Stop Loss: 49.90
Target(s): 58.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 5 weeks
New Positions: Yes, see below

Comments:
12/12 update: Whoa! FTI displayed relative weakness on Monday with a -4.0% decline. The close under $50.00 is short-term bearish. I am adjusting our entry point strategy for tomorrow to buy calls at $51.05 with a stop loss at $49.40. We want to keep our position size small.

Conservative traders will want to exit near $55.00. We are setting our target at $58.00. FYI: The Point & Figure chart for FTI is bullish with a $69 target.

*See Entry Details Above*

- Suggested Positions - (Small Positions)

buy the Jan $55 call (FTI1221A55)

12/12/11 adjusted entry point strategy. use a trigger at 51.05, stop loss 49.40, keep position size small.

Entry on December xx at $ xx.xx
Earnings Date 02/14/12 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on December 10, 2011


NetApp, Inc. - NTAP - close: 37.13 change: -0.88

Stop Loss: 36.25
Target(s): 39.50
Current Option Gain/Loss: +23.5%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
12/12 update: NTAP gapped open lower this morning thanks to widespread weakness in the tech sector (thanks, INTC!) and shares hit $36.55 at their low. I am not suggesting new positions at this time.

Earlier Comments:
I do consider a more aggressive trade. We want to keep our position size small to limit risk. FYI: Readers should note that there is a risk that NTAP might make an acquisition soon. There are rumors floating around that NTAP could buy Quantum (QTM) or CommVault (CVLT) in an effort to better compete with rival EMC. If NTAP does make a bid for either company typically shares of the buyer go down while shares of the target go up.

- Suggested Positions - (small positions)

Long JAN $35 call (NTAP1221A35) Entry $2.51

12/10/11 new stop loss @ 36.25
12/08/11 new stop loss @ 35.75, more conservative traders may want to exit immediately.
12/03/11 new stop loss @ 34.95

Entry on November 29 at $35.82
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 9.2 million
Listed on November 28, 2011


O'Reilly Automotive - ORLY - close: 80.93 change: -0.11

Stop Loss: 77.85
Target(s): 84.00
Current Option Gain/Loss:(Dec$75c: +61.4%)& Jan$80c: +80.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/12 update: ORLY held up very well, closing with a fractional loss. Traders bought the dip near $80.00 this morning. I am raising our stop loss to $77.85. I am not suggesting new positions at this time.

- Suggested Positions -

Long JAN $80 call (ORLY1221A80) Entry $1.50*

12/12/11 new stop loss @ 77.85
12/10/11 new stop loss @ 76.90
12/08/11 new stop loss @ 76.40, more conservative traders may want to exit early.
12/06/11 Planned exit Dec. calls at the open. The Bid on the Dec. $75 call was $4.52 (+61.4%)
12/05/11 Strategy change: Exit the December calls tomorrow at the open. Move the exit target for the January calls from $82.50 to $84.00.
12/03/11 new stop loss @ 74.90
11/28/11 ORLY gapped open higher at $76.96, which was above our trigger to buy calls at $76.15.
*Jan $80 call did not trade today. Entry price is an estimate.

Entry on November 28 at $76.96
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 26, 2011


Phillip Morris Intl. - PM - close: 75.15 change: -0.43

Stop Loss: 73.75
Target(s): 78.50
Current Option Gain/Loss: + 42.8%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
12/12 update: PM spent the latter half of its day in a 40-cent range, churning on either side of the $75.00 level. I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is $78.50. FYI: The Point & Figure chart for PM is bullish with a $95 target.

- Suggested Positions -

Long 2012 Jan $75 call (PM1221A75) Entry $1.12

12/05 Call is up +100%, readers may want to exit now!
12/03 new stop loss @ 73.75
11/30 new stop loss @ 71.40
11/23 adjusted stop loss to $69.49
11/22 trade opened. PM opened at $72.11

Entry on November 22 at $72.11
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 7.3 million
Listed on November 19, 2011


Boston Beer Co. Inc. - SAM - close: 101.32 change: -2.65

Stop Loss: 98.75
Target(s): 109.50
Current Option Gain/Loss: -36.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/12 update: Shares of SAM continue to show volatility. The stock opened lower and dipped to $100.39 before paring its losses to -2.5%. Technically the intraday bounce near $100 looks like an entry point but I am cautious on launching new positions.

Earlier Comments:
Our exit target is $109.50. More aggressive traders may want to aim higher. FYI: The Point & Figure chart for SAM is bullish with a $117 target. NOTE: The most recent data listed short interest at 20% of SAM's extremely small 8.3 million-share float. That's definitely a recipe for a short squeeze.

(small positions) - Suggested Positions -

Long JAN $105 call (SAM1221A105) Entry $2.05

12/03/11 new stop loss @ 98.75
12/02/11 trade triggered at $102.00

Entry on December 02 at $102.00
Earnings Date 03/08/12 (unconfirmed)
Average Daily Volume = 72.3 thousand
Listed on December 01, 2011


Watsco Inc. - WSO - close: 65.26 change: +0.09

Stop Loss: 63.25
Target(s): 69.50
Current Option Gain/Loss: Jan$65: -52.1% & Jan$70c: -47.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/12 update: WSO displayed a little relative strength by managing a small gain. Traders bought the dip near its rising 10-dma before WSO bounced back into positive territory. Given the market's weakness today I am a little hesitant to launch positions here.

FYI: The Point & Figure chart for WSO is bullish with an $80 target. NOTE: Readers may want to keep positions small, the spreads on WSO have widened significantly.

- Suggested Positions - These options are suffering from wide spreads!

Long Jan $65 call (WSO1221A65) Entry $3.45*

- or -

Long Jan $70 call (WSO1221A70) Entry $1.15*

*12/09/11 entry prices are estimates. options did not trade at the time WSO hit our entry point.

Entry on December 09 at $65.55
Earnings Date 02/14/12 (unconfirmed)
Average Daily Volume = 227 thousand
Listed on December 07, 2011


PUT Play Updates

Check Point Software - CHKP - close: 53.56 change: -1.12

Stop Loss: 56.11
Target(s): 48.00
Current Option Gain/Loss: -29.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/12 update: CHKP opened lower but found support near last week's lows. Shares ended the day down -2.0%. Readers may want to look for a drop under $52.75 as a new entry point. Conservative traders may want to lower their stop loss toward the 20-dma (near 54.65).

Earlier Comments:
There is potential support near $51.00 but we're aiming for the $48.00 level. More aggressive traders could aim lower. FYI: The Point & Figure chart for CHKP is bearish with a $46 target.

(Small Positions) - Suggested Positions -

Long Jan $50 PUT (CHKP1221M50) Entry $1.20

Entry on December 09 at $53.29
Earnings Date 01/30/12 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on December 08, 2011


Juniper Networks - JNPR - close: 19.83 change: -0.07

Stop Loss: 20.75
Target(s): 16.75
Current Option Gain/Loss: - 17.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/12 update: JNPR gapped open lower, setting our entry point at $19.58. The stock spent the rest of the day churning sideways in a very narrow range before finally seeing a bounce in the last 30 minutes. I am concerned that JNPR didn't see a bigger decline. The NASDAQ lost -1.3% but JNPR only lost -0.3%. I am not suggesting new positions at this time.

(small positions) - Suggested Positions -

Long 2012Jan $17.50 PUT (JNPR1221M17.5) entry $0.57

12/12/11 JNPR gapped open lower at $19.58, opening our trade. Stop loss at $20.75

Entry on December 12 at $19.58
Earnings Date 01/24/12 (unconfirmed)
Average Daily Volume = 8.8 million
Listed on December 10, 2011


SPDR S&P 500 ETF - SPY - close: 124.21 change: -1.84

Stop Loss: 127.55
Target(s): 120.50
Current Option Gain/Loss: -18.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/12 update: The SPY slipped to new relative lows before paring its losses. Shares closed down -1.4%. I am not suggesting new positions at this time.

Earlier Comments:
We want to keep our position size small to limit our risk.

- Suggested Positions -

Long 2012Jan $120 PUT (SPY1221M120) Entry $2.67

12/02/11 trade opened at $126.12 (gap higher), trigger was 126.00

Entry on December 02 at $126.12
Earnings Date --/--/--
Average Daily Volume = 224 million
Listed on November 30, 2011


Thermo Fisher Scientific - TMO - close: 45.13 change: -0.51

Stop Loss: 48.01
Target(s): 42.75
Current Option Gain/Loss: Dec$45p: + 22.2% & Jan$45P: +25.0%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
12/12 update: TMO spent the day drifting sideways along round-number support at the $45.00 level. I am not suggesting new positions at this time. We only have four days left before December options expire. More conservative traders may want to exit December options now!

Our target is $42.75. FYI: The Point & Figure chart for TMO is bearish with a $41 target.

- Suggested Positions -

Long DEC $45 put (TMO1117X45) Entry $0.45
(less than 2 weeks left for Decembers)

- or -

Long JAN $45 put (TMO1221M45) Entry $1.40

12/05/11 TMO gapped open higher at $47.10

Entry on December 05 at $47.10
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 3.5 million
Listed on December 03, 2011


Watson Pharmaceuticals - WPI - close: 61.18 change: -0.34

Stop Loss: 64.25
Target(s): 56.00
Current Option Gain/Loss: Dec$60p: -43.7% & Jan$60p: - 7.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/12 update: Today looked a lot like Friday. Both days WPI produced a brief spike higher early in the morning only to see the rally reverse near $62.50. WPI tagged a new relative low at $60.78 before paring its losses. I would still consider new positions now.

Keep in mind that December options expire in four trading days.

Earlier Comments:
There is potential support at $60.00 but I am aiming for the $56.00 level.

- Suggested Positions -

Long DEC $60 PUT (WPI1117X60) Entry $0.80
(only 5 trading days left for Decembers)

- or -

Long JAN $60 PUT (WPI1221M60) Entry $2.00

Entry on December 07 at $61.75
Earnings Date 02/14/12 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on December 03, 2011


Market Neutral Play Updates

iShares Russell 2000 ETF - IWM - close: 73.47 change: -1.07

Stop Loss: n/a
Target(s): TBD
Current Option Gain/Loss: -41.1%
Time Frame: up to December options expiration
New Positions: Must Be Opened on Thursday 12/08

Comments:
12/12 update: Stocks are chopping sideways in a volatile manner, which is exactly what we do not want with a market neutral trade like this. We need stocks to pick a direction and go.

We only have four trading days left on this December options. I am not suggesting new positions at this time.

- Market Neutral Strangle - cost: 2.04 value: 1.04 (-49.0%)

Long DEC $77 call (IWM1117L77) Entry $0.58, current bid/ask $0.10/0.12

- Also Buy the -

Long DEC $73 put (IWM1117X73) Entry $1.46, current bid/ask $0.94/0.97

Entry on December 08 at $73.90
Earnings Date --/--/--
Average Daily Volume = 61 million
Listed on December 07, 2011


CLOSED BULLISH PLAYS

Hewlett-Packard Co. - HPQ - close: 27.34 change: -0.44

Stop Loss: 27.20
Target(s): 32.00
Current Option Gain/Loss: -48.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/12 update: Semiconductor giant Intel (INTC) issued an earnings warning this morning, claiming that the floods in Thailand and the lack of hard drives available would impact INTC's revenues. This hit the entire technology sector pretty hard and HPQ was clobbered. Shares of HPQ gapped open lower at $27.07. This was below our stop loss at $27.20. The trade was closed immediately.

(small positions) - Suggested Positions -

2012Jan $30 call (HPQ1221A30) Entry $0.80 exit $0.41

12/12/11 INTC's earnings warning hit the tech sector. HPQ gapped down below our stop loss. Trade closed at $27.07
12/08/11 HPQ broke out past resistance, hit our trigger at $28.65, and promptly reversed lower to close near the bottom of its recent trading range.

chart:

Entry on December 08 at $28.65
Earnings Date 02/22/12 (unconfirmed)
Average Daily Volume = 22.4 million
Listed on December 05, 2011